Soros Calls for New Economic Thinking

By Sara Schaefer Munoz

Jason Alden/Bloomberg News

George Soros spoke at The Wall Street Journal Global Finance conference in Horsham, U.K., on Tuesday.

Global regulation of the financial industry is “bound to be wrong,” at least initially, but it is necessary for a global financial system to endure, famous hedge fund manager George Soros said Tuesday.

For years, global markets have been based on a “false premise” – that markets are self-correcting, Soros said during an interview at the Wall Street Journal’s Future of Finance conference in West Sussex, England.

Now, he said, governments must create a new system.

“You need to build something that wasn’t there,“ he said. “Regulations have to be global if you want to have global markets.”

Without worldwide rules, markets will eventually break down into national units, he said.

Soros said he believes that bubbles – such as the recent real estate boom – should be controlled through margin and capital requirements, and perhaps even the slowdown in the issuance of a company’s shares in some cases.

But he suggested there could some errors along the way.

“While markets are imperfect, regulators are even more imperfect,” he said. Regulation is “bound to be wrong, but [regulators] will get feedback from the market . . . which will allow them to adjust it.”

The veteran investor also called for a change in how economics is taught in academic institutions, with the emphasis moving away from the widely accepted mantra that markets are always efficient. He has set up the Institute for New Economic Thinking, http://www.ineteconomics.org/ to explore why prevailing economic theory failed to predict the financial crisis.

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